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Did Hedge Funds Make The Right Call On Brightcove Inc (BCOV)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Brightcove Inc (NASDAQ:BCOV) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Brightcove Inc (NASDAQ:BCOV) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. At the end of this article we will also compare BCOV to other stocks including Cytosorbents Corp (NASDAQ:CTSO), Bar Harbor Bankshares (NYSE:BHB), and Northern Oil & Gas, Inc. (NYSE:NOG) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

RENAISSANCE TECHNOLOGIES

Jim Simons of Renaissance Technologies

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let’s take a gander at the new hedge fund action surrounding Brightcove Inc (NASDAQ:BCOV).

What have hedge funds been doing with Brightcove Inc (NASDAQ:BCOV)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in BCOV over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is BCOV A Good Stock To Buy?

Among these funds, Trigran Investments held the most valuable stake in Brightcove Inc (NASDAQ:BCOV), which was worth $28.4 million at the end of the third quarter. On the second spot was Tenzing Global Investors which amassed $26.1 million worth of shares. Archon Capital Management, Renaissance Technologies, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Tenzing Global Investors allocated the biggest weight to Brightcove Inc (NASDAQ:BCOV), around 14.43% of its 13F portfolio. Archon Capital Management is also relatively very bullish on the stock, earmarking 7.06 percent of its 13F equity portfolio to BCOV.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Weld Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Engineers Gate Manager).

Let’s now review hedge fund activity in other stocks similar to Brightcove Inc (NASDAQ:BCOV). We will take a look at Cytosorbents Corp (NASDAQ:CTSO), Bar Harbor Bankshares (NYSE:BHB), Northern Oil & Gas, Inc. (NYSE:NOG), and West Bancorporation, Inc. (NASDAQ:WTBA). This group of stocks’ market caps are similar to BCOV’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CTSO 9 12459 4
BHB 4 6485 -1
NOG 12 33650 -9
WTBA 4 7660 -2
Average 7.25 15064 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $15 million. That figure was $102 million in BCOV’s case. Northern Oil & Gas, Inc. (NYSE:NOG) is the most popular stock in this table. On the other hand Bar Harbor Bankshares (NYSE:BHB) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Brightcove Inc (NASDAQ:BCOV) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on BCOV as the stock returned 69.4% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.